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Market Sentiment Analysis

Of late, many of my consulting clients have been seeking my opinion on the local equity market. They seem losing confidence in the local market, which is totally comprehendible given the current high Covid infection numbers and dim outlook.

To better quantify the underlying market sentiment, let’s have a quick look at the COWI Risk Index designed and compiled by Pick@Stock.

In a nutshell, COWI is a sentiment and contrarian indicator which tries to help investors to capitalize on a potential Mean-Reverting process. Sounds complicated? Not at all.

A mean-reversion trading strategy involves betting that prices will revert back towards the mean or average. In other words, this strategy suggests investors position themselves when market sentiment is at the lowest and adjust their positions if and when sentiment reverting back to the long-term average or even at the other extreme end.
From Figure 1, it is clearly seen that both FBMKLCI (Yellow Line; Left-hand side) and FBMSC Index (Purple Line; Left-hand side) recorded their respective significant lows and highs when the COWI Risk Index (Right-hand side) traded below (or lower end) and above (or higher end) of its long-term Bollinger Bands. The 55-RSI also concurs with such observation.

Should investors “buy” this idea, then probably the market sentiment is approaching its trough. However, this bottoming process may probably be taking a few more weeks as RSI has yet to turn Oversold (or below the 30-mark) and the Weekly COWI Risk Index has yet to test the lower end of its trading range and we have yet to see a meaningful reversal pattern (see Figure 2).

Having said that it is believed that investors should not give up just yet and probably pay more attention to any potential reversal signs in the next couple of weeks. Of course, it is also wise for investors to filter out a list of good fundamentally sound stocks as a “shopping list”.

Last but not least, this is just my two cents, and hope that each and every investor exercises his/her wise judgment before investing or trading.

Stay cool and stay safe everyone!

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DISCLAIMER:
THIS IS NOT AN ADVICE ON ANY INVESTMENT OR TO TIME THE MARKET. IT IS JUST SHARING FOR EDUCATION PURPOSES. PLEASE NOTE THAT THE ABOVE ANALYSES ARE BASED ON THE BEST AVAILABLE INFORMATION ON PUBLIC PLATFORMS. I WILL NOT ACCEPT ANY LIABILITY WHATSOEVER FOR ANY DIRECT OR CONSEQUENTIAL LOSS ARISING FROM ANY USE OF THIS INFORMATION.

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Industrial Analysis